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A new tax break for individuals and entities who develop property in Opportunity Zones can also benefit affordable housing developers.
The Opportunity Zones include 9000 census tracts around the country including some in Rochester and surrounding areas throughout upstate New York.
Tax breaks for investors include deferred tax on capital gains from the sale of land, buildings, businesses or stock. In addition, those capital gains can be reduced or eliminated, depending on how long they hold Opportunity Zone projects. When Opportunity Zone projects are held for 10 years or more, tax on the capital gain is eliminated. Most Affordable Housing projects are held for longer than that.
The new regulations also confirm that either partnerships or their partners can qualify for deferral and reduced taxation of their capital gains by investing in these projects.
When making improvements to existing facilities, those improvements need to be “substantial”. The new regulations clarify that only the cost of the building (not the land) will be considered when determining whether an improvement is “substantial”.
Affordable Housing projects generally take longer than commercial projects. The new regulations will allow tax benefits for projects that go on for approximately 2 ½ years, as long as the project is substantially the same as the what investors provided to qualify their project. This makes these new incentives appropriate for Affordable Housing projects.